Buyers and Sellers Information

Tips for Buyers

A real estate transaction is complicated. In most cases, buying or selling a home requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page government-mandated settlement statements. A knowledgeable guide through this complexity can help you avoid delays or costly mistakes.

Selling or buying a home is time consuming. And it usually takes another 60 days or so for the transaction to close after an offer is accepted.

Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with someone who speaks that language.

REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. That’s why having an expert on your side is critical.

REALTORS® provide objectivity. Since a home often symbolizes family, rest, and security, not just four walls and roof, home selling or buying is often a very emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you keep focused on both the business and emotional issues most important to you.

How long have you been in residential real estate sales? Is it your full-time job? While experience is no guarantee of skill, real estate, like many other professions, is mostly learned on the job.

What designations do you hold? Designations such as GRI and CRS, which require that agents take additional, specialized real estate training, are held by only about one-quarter of real estate practitioners.

How many homes did you and your company sell last year?

How many days did it take you to sell the average home? How did that compare to the overall market?

How close to the initial asking prices of the homes you sold were the final sale prices?

What types of specific marketing systems and approaches will you use to sell my home? Look for someone who has aggressive, innovative approaches, not just someone who’s going to put a sign in the yard and hope for the best.

Will you represent me exclusively, or will you represent both the buyer and the seller in the transaction? While it’s usually legal to represent both parties in a transaction, it’s important to understand where the agent’s obligations lie. A good agent will explain the agency relationship to you and describe the rights of each party. It’s also possible to insist that the agent represent you exclusively.

Can you recommend service providers who can assist me in obtaining a mortgage, making repairs on my home, and other things I need done? Keep in mind here that agents should generally recommend more than one provider and should tell you if they receive any compensation from any provider.

What type of support and supervision does your brokerage office provide to you? Having resources such as in-house support staff, access to a real estate attorney, or assistance with technology can help an agent sell your home.

What’s your business philosophy? While there’s no right answer to this question, the response will help you assess what’s important to the agent—fast sales, service, etc.—and determine how closely the agent’s goals and business emphasis mesh with your own.

How will you keep me informed about the progress of my transaction? How frequently? Using what media? Again, this is not a question with a correct answer, but that one reflects your desires. Do you want updates twice a week or don’t want to be bothered unless there’s a hot prospect? Do you prefer phone, e-mail, or a personal visit?

Could you please give me the names and phone numbers of your three most recent clients?

Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately.

Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.

Understand replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.

Understand actual cash value. If you chose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.

Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.

Ways to Lower Your Homeowners Insurance Costs

Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower.

Buy your homeowners and auto policies from the same company and you’ll usually qualify for a discount. But make sure that the savings really yields the lowest price.

Make your home less susceptible to damage. Keep roofs and drains in good repair. Retrofit your house to protect against natural disasters common to your area.

Keep your home safer. Install smoke detectors, burglar alarms, and dead-bolt locks. All of these will usually qualify for a discount.

Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.

Ask about other discounts. For example, retirees who are home more than working people may qualify for a discount on theft insurance.

Stay with the same insurer. Especially in today’s tight insurance market, your current vendor is more likely to give you a good price.

See if you belong to any groups—associations, alumni groups—that offer lower insurance rates.

Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.

See if there’s a government-backed insurance plan. In some high-risk areas, such as coasts, federal or state government may back plans to lower rates. Ask your agent.

Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes you pay, as well as some of the costs involved in buying your home.

Gains. Over last five years (1998-2002) national home prices have increased at an average of 5.4 percent annually. And while there’s no guarantee of appreciation, a 2001 study by the National Association of REALTORS® found that the typical homeowner has approximately $50,000 of unrealized gain in a home.

Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.

Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

Predictability. Unlike rent, your mortgage payments don’t go up over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will rise.

Freedom. The home is yours. You can decorate any way you want and be able to benefit from your investment for as long as you own the home.

Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

Before you buy, contact the condo board with the following questions. In the process, you’ll learn how responsive—and organized—its members are.

What percentage of units is owner-occupied? What percentage is tenant-occupied? Generally, the higher the percentage of owner-occupied units, the more marketable the units will be at resale.

What covenants, bylaws, and restrictions govern the property? What grandfather clauses are in place? You may find, for instance, that those who buy a property after a certain date can’t rent out their units, but buyers who bought earlier can. Ask for a copy of the bylaws to determine if you can live within them. And have an attorney review property docs, including the master deed, for you.

How much does the association keep in reserve? How is that money being invested?

Are association assessments keeping pace with the annual rate of inflation? Smart boards raise assessments a certain percentage each year to build reserves to fund future repairs.To determine if the assessment is reasonable, compare the rate to others in the area.

What does and doesn’t the assessment cover—common area maintenance, recreational facilities, trash collection, snow removal?

What special assessments have been mandated in the past five years? How much was each owner responsible for? Some special assessments are unavoidable. But repeated, expensive assessments could be a red flag about the condition of the building or the board’s fiscal policy.

How much turnover occurs in the building?

Is the project in litigation? If the builders or homeowners are involved in a lawsuit, reserves can be depleted quickly.

Is the developer reputable? Find out what other projects the developer has built and visit one if you can. Ask residents about their perceptions. Request an engineer’s report for developments that have been reconverted from other uses to determine what shape the building is in. If the roof, windows, and bricks aren’t in good repair, they become your problem once you buy.

Are multiple associations involved in the property? In very large developments, umbrella associations, as well as the smaller association into which you’re buying, may require separate assessments.

The lender must disclose a good faith estimate of all settlement costs. A check to cover your closing costs will probably have to be a cashier’s check. The title company or other entity conducting the closing will tell you the required amount for:

Down payment.

Loan origination fees.

Points, or loan discount fees you pay to receive a lower interest rate.

Appraisal fee.

Credit report.

Private mortgage insurance premium.

Insurance escrow for homeowners insurance, if being paid as part of the mortgage.

Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.

Deed recording fees.

Title insurance policy premiums.

Survey.

Inspection fees—building inspection, termites, etc.

Notary fees.

Prorations for your share of costs such as utility bills and property taxes.

A Note About Prorations.

Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first 5 days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.

What to Keep From Your Closing

The Real Estate Settlement Procedures Act (RESPA) statement. This form, sometimes called a HUD 1 statement, itemizes all the costs associated with the closing. You’ll need for income tax purposes and when you sell the home.

The Truth in Lending Statement summarizes the terms of your mortgage loan.

The mortgage and the note (two pieces of paper) spell out the legal terms of your mortgage obligation and the agreed-upon repayment terms.

The deed transfers ownership of the property to you.

Affidavits swearing to various statements by either party. For example, the sellers will often sign an affidavit stating that they have not incurred any liens on the property.

Riders are amendments to the sales contract that affect your rights. For example, if you buy a condominium, you may have a rider outline the condo association’s rules and restrictions.

Increase your chances of getting your dream house instead of losing it to another buyer, with these easy steps.

Get prequalified for a mortgage. In this way, you’ll be able to make a firm commitment to buy and make your offer more desirable to the seller.

Stay in close touch with your real estate sales associate to find out first about new listings that come on the market. And be ready to go see a house as soon as it goes on the market. Scout out new listings yourself.

Look at Internet sites, newspaper ads, and drive by the neighborhood frequently. Maybe you’ll see a brand-new “for sale” sign before anyone else.

Be ready to make a decision.

Spend lots of time in advance deciding what you must have so you won’t be unsure when you have the chance to make an offer.

Bid competitively. You may not want to start out offering the absolutely highest price you can afford, but don’t try to go to low and get a deal. In a tight market, you’ll lose out.

Keep contingencies to a minimum. Restrictions such as needing to sell your home before you move or wanting to delay the closing until a certain date can make your offer unappealing. In a tight market, you’ll probably be able to sell you house rapidly. Or talk to your lender about getting a bridge loan to cover both mortgages for a short period.

Don’t get caught in a buying frenzy. Just because there’s competition doesn’t mean you should just buy anything. And even though you want to make your offer attractive, don’t neglect inspections that help ensure that your house is sound.

Furnace/Air Conditioning: Look for age, energy rating. Furnaces are rated by annual fuel utilization efficiency; the higher the rating, the lower your fuel costs. However, other factors such as payback period and other operating costs, such as electricity to operate motors.

Garage: Look for exterior in good repair; condition of floor—cracks, stains, etc.; condition of door mechanism.

Basement: Look for water leakage, musty smell.

Attic: Look for adequate ventilation, water leaks from roof.

Septic Tanks (if applicable): Adequate absorption field capacity for the percolation rate in your area and the size of your family.

Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.

Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.

Balloon mortgages offer very low interest rates for a short period of time—often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.

Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov), offer special terms, including lower downpayments or reduced interest rates—to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae’s online mortgage calculators.

Be sure you find a loan that fits your needs with these comprehensive questions.

What are the most popular mortgage loans you make? Why?

Which type of mortgage plan do you think would best for us? Why?

Are your rates, terms, fees, and closing costs negotiable?

Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance is usually required if you make less than a 20-percent downpayment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.

Who will service the loan? Your bank or another company?

What escrow requirements do you have?

How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?

Tips for Sellers

Get estimates from a reliable repairperson on items that need to be replaced soon, a roof or worn carpeting, for example. In this way, buyers will have a better sense of how much these needed repairs will affect their costs.

Have a termite inspection to prove to buyers that the property is not infested.

Get a pre-sale home inspection so you’ll be able to make repairs before buyers become concerned and cancel a contract.

Gather together warranties and guarantees on the furnace, appliances, and other items that will remain with the house.

Fill out a disclosure form provided by your sales associate. Take the time to be sure that you don’t forget problems, however minor, that might create liability for you after the sale.

Get rid of clutter. Throw out or file stacks of newspapers and magazines. Pack away most of your small decorative items. Store out-of-season clothing to make closets seem roomier. Clean out the garage.

Wash your windows and screens to let more light into the interior.

Keep everything extra clean. Wash fingerprints from light switch plates. Mop and wax floors. Clean the stove and refrigerator. A clean house makes a better first impression and convinces buyers that the home has been well cared for.

Get rid of smells. Clean carpeting and drapes to eliminate cooking odors, smoke, and pet smells. Open the windows.

Make minor repairs that can create a bad impression. Small problems such as sticky doors, torn screens, cracked caulking, or a dripping faucet may seem trivial, but they’ll give buyers the impression that the house isn’t well maintained.

Tidy your yard. Cut the grass, rake the leaves, trim the bushes, and edge the walks. Put a pot or two of bright flowers near the entryway.